EXHIBIT 99.1
Consolidated Financial Statements
Palmetto MobileNet, L.P.
Years Ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
Palmetto MobileNet, L.P.
Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors.............................................1
Consolidated Financial Statements
Consolidated Balance Sheets................................................2
Consolidated Statements of Income and Partners' Equity.....................3
Consolidated Statements of Cash Flows......................................4
Notes to Consolidated Financial Statements...............................5-8
(i)
Report of Independent Auditors
To the Partners of
Palmetto MobileNet, L.P.
We have audited the accompanying consolidated balance sheets of Palmetto
MobileNet, L.P. as of December 31, 1999 and 1998, and the related
consolidated statements of income and partners' equity, and cash flows for
each of the three years ended December 31, 1999, 1998, and 1997. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements
of certain RSA partnerships, the investments in which, as discussed in Note
3 to the financial statements, are accounted for by the equity method of
accounting. The investments in these RSA partnerships were $94,565,607 and
$96,613,823 as of December 31, 1999 and 1998, respectively, and the equity
in their net income was $27,644,685, $23,390,795, and $15,014,286 for the
years 1999, 1998, and 1997, respectively. The financial statements of the
RSA partnerships were audited by other auditors whose reports were
furnished to us, and our opinion on the consolidated financial statements
of Palmetto MobileNet, L.P., insofar as it relates to the amounts included
for the RSA partnerships, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Palmetto MobileNet, L.P. as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years ended December 31, 1999,
1998, and 1997 in conformity with generally accepted accounting principles.
/s/ Bauknight Pietras & Stormer, P.A.
--------------------------------------
Bauknight Pietras & Stormer, P.A.
April 14, 2000
Columbia, South Carolina
1
Palmetto MobileNet, L.P.
Consolidated Balance Sheets
December 31,
--------------------------------------
1999 1998
----------------- ---------------
Assets
Current assets:
Cash and cash equivalents $20,217,143 $12,181,206
------------ -----------
Total current assets 20,217,143 12,181,206
Interest in RSA partnerships 94,565,607 96,613,823
Other assets:
Rural Telephone Finance Cooperative 448,545 448,545
Subordinated Capital Certificates
------------ ------------
Total assets $115,231,295 $109,243,574
============ ============
Liabilities and partners' equity
Current liabilities:
Accounts payable - PMN, Inc. $125,219 $149,920
Accounts payable and accrued expenses 22,558 50,237
Accrued interest 37,596 44,583
Accrued distributions to partners -- 496,375
Current portion of long-term debt 1,149,923 1,078,118
------------ ------------
Total current liabilities 1,335,296 1,819,233
Long-term debt, net of current portion 5,824,703 6,974,627
Partners' equity 108,071,296 100,449,714
------------ ------------
Total liabilities and partners' equity $115,231,295 $109,243,574
============== =============
See accompanying notes.
2
Palmetto MobileNet, L.P.
Consolidated Statements of Income and Partners' Equity
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
------------ ------------- -------------
Equity in earnings of RSA partnership
interests $27,644,685 $23,390,795 $15,014,286
Management fee (209,561) (243,194) (316,157)
----------- ----------- ------------
Income from operations 27,435,124 23,147,601 14,698,129
Other income (expense):
Interest expense (464,708) (561,851) (618,326)
Investment income 665,013 485,851 863,028
Other (6,056) 179,637 351,673
----------- ----------- ----------
Net income 27,629,373 23,251,238 15,294,504
Partners' equity, beginning of year 100,449,714 36,438,703 39,244,199
Contribution of partners' equity 11,689 -- --
Equity exchanged for partnership
interests -- 57,699,333 --
Distributions to partners (20,019,480) (16,939,560) (18,100,000)
------------ ------------ ------------
Partners' equity, end of year $108,071,296 $100,449,714 $36,438,703
============ ============ ============
See accompanying notes.
3
Palmetto MobileNet, L.P.
Consolidated Statements of Cash Flow
Years Ended December 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
Operating activities
Net income $27,629,373 $23,251,238 $15,294,504
Adjustments to reconcile net income to
net cash used in operating activities:
Equity in earnings of RSA
partnership interests (27,644,685) (23,390,795) (15,014,286)
Changes in operating assets and
liabilities:
Accounts receivable -- -- 114,402
Accounts payable and accrued expenses (59,368) (15,305) (2,501,847)
----------- ----------- -----------
Net cash provided in operating activities (74,680) (154,862) (2,107,227)
Investing activities
Investment in RSA partnership interests -- (393,221) --
Proceeds from RSA partnership distributions 29,692,902 25,341,231 8,287,967
Costs of acquisition -- (300,838) (57,121)
Refund of investment in Rural Telephone
Finance Cooperative Subordinated Capital
Certificates -- 51,455 1,763,158
---------- ---------- ----------
Net cash provided by investing activities 29,692,902 24,698,627 9,994,004
Financing activities
Repayments of long-term debt (1,078,119) (918,151) (829,864)
Additional partnership capital received 11,689 -- --
Distributions of partnership capital (20,515,855) (16,443,185) (18,100,000)
------------ ------------ ------------
Net cash used in financing activities (21,582,285) (17,361,336) (18,929,864)
------------ ------------ ------------
Net change in cash and cash equivalents 8,035,937 7,182,429 (11,043,087)
Cash and cash equivalents, beginning
of year 12,181,206 4,998,777 16,041,864
----------- ----------- ----------
Cash and cash equivalents, end of year $20,217,143 $12,181,206 $4,998,777
============ =========== ==========
See accompanying notes.
4
Palmetto MobileNet, L.P.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1. Description of Business and Summary of Significant Accounting Policies
Palmetto MobileNet, L.P.(the "Partnership") is a South Carolina limited
partnership and is a general partner in ten general partnerships formed to
provide cellular telephone service in certain Rural Service Areas ("RSA") in
South Carolina and North Carolina. These partnerships' operations are managed
by affiliates of ALLTEL Communications, Inc.
Consolidation
The financial statements include the accounts of the Partnership and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Partnership maintains its cash and cash equivalent balances in one financial
institution located in Columbia, South Carolina. At December 31, 1999 and 1998,
cash equivalents of $17,600,000 and $11,250,000, respectively, consist of
investments in repurchase agreements.
Interests in RSA Partnerships
Investments in the RSA general partnerships are accounted for using the equity
method, under which the Partnership's share of earnings of these partnerships is
reflected in income as earned and distributions are credited against the
interests in the partnerships when received.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Palmetto MobileNet, L.P. is a South Carolina limited partnership and, therefore,
is not subject to income taxes. Each partner includes in income its distributive
share of the Partnership's taxable income or loss.
5
Palmetto MobileNet, L.P.
Notes to Consolidated Financial Statements (continued)
2. Acquisition
In January 1998, the Partnership entered into an agreement to acquire 100%
of the members equity of CT Cellular Holdings 4/5, L.L.C., 100% of the members
equity of CT Cellular Holdings 15, L.L.C. and a 51% interest in Ellerbe-Concord
Cellular Company (a North Carolina general partnership) in exchange for 28,300
units of Partnership equity valued at approximately $57,700,000. The
transaction has been recorded using purchase accounting. The financial results
of CT Cellular Holdings 4/5, L.L.C., CT Cellular Holdings 15, L.L.C., and
Ellerbe-Concord Cellular Company have been included in the accompanying
financial statements for the period from January 1, 1998 (the date of
acquisition) through December 31, 1999. The acquisition has been accounted for
as a non-cash investing and financing activity in the accompanying statement
of cash flows.
As a result of the above transaction, the Partnership obtained a 50% interest in
North Carolina RSA 5 Cellular Partnership and a 50% interest in North Carolina
RSA 15 Cellular Partnership. Consistent with investments in other general
partnerships, these interests are accounted for using the equity method. The
investments in these partnerships, which are recorded at cost less amortization,
exceed the underlying equity in net assets by approximately $11,116,000 and
$37,512,000, respectively.
Approximately $48,627,000 of cost in excess of underlying equity in net assets
is being amortized over a 15 year period. Accumulated amortization, which has
been recorded as a reduction in the interest in RSA partnerships and a reduction
in the equity in earnings of RSA partnership interests, was approximately
$6,483,000 and $3,241,000 at December 31, 1999 and 1998 respectively.
Amortization expense for the years ended December 31, 1999 and 1998 was
approximately $3,241,000.
3. Interests in RSA Partnerships
Interests in RSA partnerships which are all engaged in providing cellular
telephone service to rural areas of South Carolina and North Carolina, are:
South Carolina RSA No. 2 Cellular General Partnership (50% owned)
South Carolina RSA No. 3 Cellular General Partnership (50% owned)
South Carolina RSA No. 4 Cellular General Partnership (50% owned)
South Carolina RSA No. 5 Cellular General Partnership (50% owned)
South Carolina RSA No. 6 Cellular General Partnership (50% owned)
South Carolina RSA No. 7 Cellular General Partnership (50% owned)
South Carolina RSA No. 8 Cellular General Partnership (50% owned)
South Carolina RSA No. 9 Cellular General Partnership (50% owned)
North Carolina RSA 5 Cellular Partnership (50% owned)
North Carolina RSA 15 Cellular Partnership (50% owned)
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Palmetto MobileNet, L.P.
Notes to Consolidated Financial Statements (continued)
3 Interests in RSA Partnerships (continued)
Summarized combined financial information for the RSA partnerships (including
1997 information for the North Carolina RSA partnerships that were purchased in
1998) follows:
At December 31:
1999 1998
-----------------------------------
Current assets $19,007,806 $27,280,291
Noncurrent assets 96,892,187 83,149,074
Current liabilities 11,055,823 7,972,387
Partners' equity 104,844,170 102,456,978
For the years ended December 31:
1998 1997 1996
-----------------------------------------------
Net sales $185,006,365 $163,628,528 $133,057,976
Net income 61,772,996 53,265,210 41,220,607
The Partnership's equity in the combined net income of the RSA partnerships was
$30,886,498, $26,632,605, and $15,014,286 for the years ended December 31, 1999,
1998, and 1997, respectively. Market values of these partnership interests are
not readily available.
4. Long-Term Debt
The Partnership has a $10 million term loan agreement and a $3 million working
line of credit agreement with the Rural Telephone Finance Cooperative (the
"RTFC"). The terms of the agreements require the Partnership to maintain a
specified amount of RTFC Subordinated Capital Certificates ("SCC's"). The
Partnership had $448,545 of SCC's at December 31, 1999 and 1998.
The debt is collateralized by a first lien on the assets of the Partnership
other than the Partnership's equity interests in the ten RSA partnership
investments. The term loan provides varying quarterly payments of principal,
plus interest at fixed rates ranging from 5.85% to 6.50%. The terms of the line
of credit agreement provide for interest to be paid quarterly at the RTFC's
published variable interest rate. No funds have been advanced against the line
of credit agreement. At December 31, 1999 and 1998, $6,974,626 and $8,052,745
were outstanding under the financing agreement.
Under the terms of the financing agreement, the Partnership is required to
maintain a specified debt service coverage ratio. The Partnership was in
compliance with this covenant at December 31, 1999.
The carrying amount of the Company's long-term debt approximates fair value.
7
Palmetto MobileNet, L.P.
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt (continued)
Cash paid for interest totaled $471,965, $567,935, and $621,158 for the years
ended December 31, 1999 1998, and 1997, respectively.
Maturities of long-term debt are as follows:
2000 $1,149,923
2001 1,226,510
2002 1,308,198
2003 1,395,326
2004 1,488,257
Thereafter 406,412
-----------------
$6,974,626
=================
5. Related Party Transactions
The business affairs of Palmetto MobileNet, L.P. are managed by its 0.8% general
partner, PMN, Inc. For the years ended December 31, 1999, 1998, and 1997,
approximately $210,000, $243,000, and $316,000 were paid to the general partner
to perform this function.
6. Commitments and Contingencies
Pursuant to each RSA general partnership agreement, Palmetto MobileNet, L.P.
is subject to requests for additional capital.
The Internal Revenue Service ("IRS") is performing examinations of the records
of a significant number of the RSA partnerships, in which the Partnership has
ownership interests, for the years ended December 31, 1991 to 1996. For certain
RSA's, the IRS has completed its audits and has issued "60 Day Letters"
indicating adjustments they plan to make to the RSA tax returns. The RSA
partnerships are vigorously contesting the IRS audit findings and, as a result,
the amount of final adjustment, if any, cannot be determined at this time. The
final adjustments, if any, from the IRS examinations will ultimately be
allocated to each partner to be included in their taxable income.
8